Adjustment of enterprises’ data on the basis of their financial reports

Adjustment of primary data for unreliability is made by comparing and analyzing interrelated indicators presented by enterprises in their financial reports. The structure of the reports makes it possible to compare indicators of production (gross output, intermediate consumption, gross value added) at the enterprise level with the data of different statistical reports. Gross value added is determined by two methods: on the basis of output; and on the basis of the expenditure for its components. Here one condition is observed, namely, if an enterprise has paid income tax, profit should not be negative. Otherwise, profit should be taken as equal to profitability for the given branch. Figures for intermediate consumption are calculated on the basis of information on the enterprise’s expenditure and are not adjusted. The estimates of gross value added are compared and the larger amounts are used in the calculations. After that the output is adjusted correspondingly. 5. Methodology applied at the level of national accounts

At the next stage, in compiling national accounts, estimates of the non-observed economy are made to ensure the completeness, reliability and coherence of SNA indicators and GDP. This requires adjustments for non-observed economy both on the part of production of goods and services, and of generation and use of incomes. Goods, services and incomes concealed at the production stage can be covered by regular statistical observation when they are used, and the adjustments at the production and consumption stages may not coincide.

After comparing the output of goods and services adjusted by branches with the figures of output received by adjusted financial reports, a decision is made what data will be used to calculate gross value added for each type of activity. Then the production estimate of GDP is made.

In order to ensure reconciliation of the estimates of produced GDP with those of consumed GDP, analysis is made of the components of gross value added. Assuming that the Ministry of Finance data on taxes are reliable and gross profit is estimated by a residual method, the comparison is made on the basis of compensation of employees. To calculate the compensation of employees in the SNA framework the following information is used:

• reports on the number of employees and total wages by type of economic activity; • bank reports on incomes and losses (National Bank);

• reports of insurance companies and pension funds;

• reports on the implementation of state budget (Ministry of Finance); • reports on the activities of small enterprises;

• main indicators of the labour market.

The compensation of employees is calculated in several stages. It is assumed that the data from the Ministry of Finance and the National Bank are reliable, and that all adjustments are made for the non-financial sector.

164 KAZAKHSTAN

At the first stage, the reported data on the number of employees are compared with those taken from the population survey. Adjustments are made by grossing up average wages per employed person, calculated for each kind of activity to the number of uncovered employed persons.

Average wages per employee, calculated on the basis of the data contained in the report on the activities of small enterprises, are used to adjust the compensation of employees of small enterprises. After grossing up this value to the number of employees taken from the population survey, the wages for small enterprises are determined.

Data on the number of employees taken from the bulletin Main indicators of the labour

market in the Republic of Kazakhstan are used to estimate the value of adjustments for farmers’

households. Data on average wages in agriculture are taken from the report on the activities of small enterprises. Then the percent of compensation of employees in gross value added by branches is determined, and compared with a similar indicator in the report on production and financial activities of enterprises. These shares are used to estimate the compensation of employees; the difference between this and the reported figure shows the needed adjustment for hidden compensation of employees. Along with this, the analysis of dynamics of other gross value added components is made (profit, taxes).

Adjusted compensation of employees is distributed by components (wages, actual contributions of employers for social insurance, imputed contributions of employers for social insurance) according to the structure, received from the reported number of employees by economic activities.

For the expenditure-based estimate of GDP, adjustments are made for final consumption of households, exports and imports. Data for exports and imports adjusted for ‘shuttle traders’ (the method is described above) and ‘transit residue’ is presented by the National Bank. The sources of information to estimate household expenditures for final consumption are: retail trade statistics, household budget surveys and balance of agricultural products.

The data for 2004, calculated using the NA framework and household budget survey, are given in Table 1.

Table 1 shows that data on final consumption of households according to the SNA exceed the results of the household surveys by more than one and a half times and constitute 36.8 per cent of GDP (21.2 per cent according to the family budget survey). Most discrepancies fall in the category of expenditure on services.

Comparison of data at different levels leads to various adjustments. Many of them are connected indirectly with hidden and informal activities, not included in primary data sources. That is why the non-observed economy included in the estimates of national accounts cannot be determined and shown explicitly. However, the values of adjustments can be obtained from comparisons with primary data. The dynamics of the non-observed economy for 1990-2003 are shown in Figure 1.

Table 1. Data calculation using the SNA framework and household budget surveys 2004

Share in the household final consumption expenditure GDP billion tenge Expenditure according to household

surveys NA framework According to household surveysAccording to

Total goods 1 381.0 950.7 63.7 76.3

Food products 739.2 577.6 34.1 46.3

Non-food and other products 642.9 373.1 29.6 29.9

Total services 785.4 294.8 36.3 23.7

Health care 139.2 11.6 6.4 0.9

Education 174.1 44.5 8.0 3.6

Culture 78.7 6.1 3.6 0.5

Transport and communications 281.0 84.2 12.9 6.8

Communal services 98.5 139.2 4.5 11.2

Banks, insurance 7.3 0.0 0.4 0.0

Other 6.7 9.19 0.3 0.7

Total expenditure 2 166.5 1 245.4 100.0 100.0

Figure 1. Share of non-observed economy in GDP of the Republic of Kazakhstan (Per cent) 9.0 _10.0 9.8 9.7 9.9 12.2 11.2 15.5 14.0 10.9 5.7 7.3 4.7 3.5 3.0 11.6 12.8 14.2 14.8 15.2 19.1 22.4 23.1 22.0 18.6 16.0 17.0 9.2 21.6 22.6 23.9 24.7 27.4 30.3 37.9 37.1 32.9 24.3 23.3 21.7 12.5 12.2 0 10 20 30 40 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

166 KYRGYZSTAN

KYRGYZSTAN

1. Introduction

The existence of underground economy in the Kyrgyz Republic is an accepted fact. The hidden (non-observed and non-recorded) economic activities significantly affect most important macroeconomic indicators, such as GDP. Without taking account of hidden economic activities it is impossible to make an objective estimate of the size of the national economy and especially of some of its components that are particularly prone to non-observed activity, such as trade and services. 2. Concepts and definitions

In the Kyrgyz Republic, the statistical definition of the term ”non-observed economy” includes both hidden and informal activities.

Hidden economy includes economic activities which are being hidden or underreported by enterprises, with the purpose of avoiding taxes, social security or other administrative obligations, as well as non-submission of administrative forms or statistical questionnaires. These activities may be carried out in all branches of the economy.

Hidden activities mainly consist of two different kinds of activities: activities that are deliberately concealed or the activities which are not registered due to deficiencies in the statistical information system.

Informal economic activities are mainly activities carried out by individual producers or so- called unincorporated enterprises, which belong to individuals or households. They are based on informal relations and produce goods and services completely or partially for their own consumption. Informal activities often constitute a secondary employment.

Illegal economic activities cover the production of those goods and services which are forbidden by law. Such activities include production and sale of drugs, unauthorised production and sale of weapons, prostitution and smuggling. At present, illegal economic activities are not included in the system of national accounts.

To adjust the GDP calculated by the production method, an estimate of value added as a result of hidden or informal production was made. This estimate is included in all the production branches.

3. Sources and estimation methods

Adjustments for hidden and informal economic activities are based on the results of either sample surveys or expert estimates and other estimates drawing upon supplementary information from various sources. The adjustments, based on survey results, are made by regional statistical offices and are then further checked in the central office in Bishkek. The adjustments based on additional information and expert estimates, are made in the central office by the experts of branch divisions or of the national accounts division.

In production-based estimates of GDP, the adjustments are made for the indicators of industrial output, construction, transport, trade, and marketed consumer services, including financial services. To a certain extent, adjustments are made to the indicators for all main branches producing market goods and services. Informal production in agriculture is also estimated but is not included in the total figures of hidden or informal production.

4. Adjustments for hidden and informal activities by industry